JPMorgan boost drives record high foreign investment inflows in markets

Foreign investors have poured a record high of ₹2.74 trillion into Indian markets this fiscal year. This inflow can be attributed to the inclusion of Indian government bonds in the government bond index-emerging markets (GBI-EM) by JP Morgan and expectations of lower interest rates in the second half of the fiscal year.

The net inflows for this fiscal year, as of 16 February, were ₹1.68 trillion into equity, ₹1.01 trillion into debt, a negative ₹0.06 trillion through the debt voluntary retention route (debt-VRR), and ₹0.11 trillion into hybrid instruments, including debt, equity, and commodities such as gold, according to securities depository National Securities Depository Limited (NSDL).

Debt-VRR allows foreign portfolio investors to invest in debt markets without certain regulatory rules, provided they commit to retain a minimum percentage of their investments in India for a specified period of time.

Market experts have attributed the attractiveness of Indian debt to foreign investors to various factors, including the inclusion of Indian government bonds in the JPMorgan Bond index, expectations of lower interest rates, and a stable currency. The stability of the rupee, which has traded in a narrower range against the US dollar compared to the previous fiscal year, has also played a role in attracting foreign investments.

The Reserve Bank of India (RBI) has been optimistic about the outlook for inflation, and markets are anticipating a cut in the repo rate in the second half of the fiscal year.

The frontloading of government bond purchases by global banks and traders has been a key driver of robust foreign portfolio investment (FPI) debt flows. It is expected that passive trackers such as debt ETFs and index funds will invest an additional $25 billion through March 2026.

Overall, the significant inflows from foreign investors reflect growing confidence in the Indian market and its potential for strong returns.